Tuesday, July 22, 2014

Terms of trade

Terms of trade
      The terms of trade is the rate at which a country’s exports are exchanged for imports. Terms of trade can be expressed in physical units but it is highly complex and inconvenient to do so. It is commonly expressed as a ratio between the index of export prices and import prices. We calculate the terms of trade as an index number using the following formula:
Terms of trade index=index of export prices    Χ   100

                                   Index of import prices      

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